Executive Corner: Two Keys to a Successful A/E Practice: Financial Discipline and Strong Ownership Culture
Through the last 25 years, I’ve had the pleasure of working with hundreds of A/E and environmental consulting firms of all sizes across the United States and abroad. Of the firms that have enjoyed sustained growth and consistent profitability through economic disruptions as well as multiple generations of leadership, I’ve observed two key characteristics or “success variables” that have been present in almost all cases: 1) disciplined financial management with timely reporting of key performance metrics, and 2) a strong ownership culture.
Disciplined financial management includes timely financial reporting of profit and loss, balance sheet, key performance indicators, sales activity, contract backlog, and other metrics. This would seem to be common sense, but you’d be shocked to know how many practices—even large ones—take months to close out financial periods and produce reliable and useful data. Firms with disciplined financial management also share performance data widely with management and staff, reward good performance and hold everyone accountable.
An ownership culture goes hand-in-hand with disciplined financial performance. This doesn’t necessarily mean an ESOP-owned company, but it does mean a company that provides ownership opportunities to its staff and cultivates an environment that encourages staff to think and act like owners. Such companies often have large and widely distributed ownership structures, with a ratio of total staff to owners of under 8:1, and multiple levels of ownership with the goal of aligning leadership responsibility with ownership levels—the higher the responsibility, the greater the ownership.
Firms with a strong ownership culture are constantly developing the next generation of owners and planning for the redemption of retiring shareholders. Creating liquidity for retiring shareholders requires consistent financial performance and strong internal demand for shares. The stock must be an attractive investment opportunity—priced fairly and providing a healthy return on investment to create such demand.
What Can Go Wrong
Conversely, firms that fail to cultivate a strong ownership culture put their future in jeopardy and, by extension, the equity of their shareholders. Unfortunately, we’ve witnessed the ramifications of this many times. It may manifest itself in the firm contracting as valuable employees move on or the owners being forced to sell externally under less-than-favorable circumstances or, in the worst-case scenario, being forced to liquidate. In each of these cases, the firm’s equity value is either diminished or lost altogether.
Ownership strategies and how they relate to growth and the creation of value in A/E firms is the theme of our annual conference we launched 12 years ago. If you’re interested in learning from industry experts and networking with other successful
A/E executives, we welcome you to join us Nov. 1-3, 2023, at the Ritz-Carlton Tiburon in beautiful Naples, Fla. For more information and to register, please visit conference.rog-partners.com.